1 Dec 2014
What if Fed delays tightening? – JPM
The JP Morgan Research team notes that there is a considerable risk for the dollar if the Fed delays tightening, as it may lead to around 3% decline in the dollar.
Key Quotes
“Fed minutes and sideline speeches clearly telegraph concern about mediocre non-US economies, dollar strength and falling inflation expectations (both market and survey-based).”
“We’ve downplayed this issue, partly because a falling oil price provides an offset and partly because there are reasons to think that at least Japanese and European growth have been held back by transitory factors.”
“But if we are wrong and the Fed responds to the feedback loop by delaying or slowing its pace of tightening, the dollar probably declines about 3% trade-weighted.”
“As templates, think of the USD sell-offs in September 2013 when the Fed delayed tapering, or in Q1 2014 when a growth slowdown delivered a substantial repricing in rates markets”
Key Quotes
“Fed minutes and sideline speeches clearly telegraph concern about mediocre non-US economies, dollar strength and falling inflation expectations (both market and survey-based).”
“We’ve downplayed this issue, partly because a falling oil price provides an offset and partly because there are reasons to think that at least Japanese and European growth have been held back by transitory factors.”
“But if we are wrong and the Fed responds to the feedback loop by delaying or slowing its pace of tightening, the dollar probably declines about 3% trade-weighted.”
“As templates, think of the USD sell-offs in September 2013 when the Fed delayed tapering, or in Q1 2014 when a growth slowdown delivered a substantial repricing in rates markets”